Commercial Division Blog

Posted: March 30, 2020 / Categories Commercial, Securities

Statute of Repose Bars Securities Act Claims

On March 16, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Matlick v. Amtrust Fin. Servs., Inc., 2020 NY Slip Op. 50357(U), holding that Securities Act claims were barred by the statute of repose, explaining:

Section 13 of the 1933 Act contains both a statute of limitations and a statute of repose for Section 11 claims. To wit, Section 13 of the 1933 Act provides:

No action shall be maintained to enforce any liability created under [§ 11] unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence . In no event shall any such action be brought to enforce a liability created under [§ 11] more than three years after the security was bona fide offered to the public

As this court previously observed in Bezio, the first sentence of the Section sets forth the relevant statute of limitations time period and the last sentence sets forth the statute of repose.

Here, AmTrust argues that any claim with respect to Series E is barred by Section 13's three-year statute of repose and is, thus, untimely because the Plaintiffs did not assert their securities claims until August 14, 2019, when they requested permission to file their Second Amended Complaint, which is more than three years after AmTrust offered the Series E ADRs on March 15, 2016.

In their opposition papers, the Plaintiffs argue that their claims are timely because (i) the Complaint was unquestionably filed within one year of the delisting announcement and, in any event, (ii) the original complaint was filed within the three-year period on March 6, 2019, and the securities claims — although not asserted in the original complaint — are also timely under the relation back doctrine of CPLR 203(f). Simply put, the Plaintiffs are incorrect.

With respect to their first argument, i.e., that the action is timely under the one-year statute of limitations portion of Section 13, this argument ignores the very next sentence of Section 13 which refines that limitation: In no event shall any such action be brought to enforce a liability created under section 11 or section 12(a)(1) more than three years after the' relevant offering or sale date. To find otherwise would read the words "in no event" out of the statute and render that phrase entirely superfluous.

California Pub. Empl. Retirement Sys. v ANZ Sec., Inc. (137 S Ct 2042 [2017]) further highlights this point. In California Pub. Empl. Retirement Sys. v ANZ Sec., Inc., the United States Supreme Court addressed the question of whether the class action tolling doctrine articulated in American Pipe & Construction Co. v Utah, 414 US 538 (1974) applied to Section 13. In that case, the plaintiff, a member of a putative class, opted out of the timely-brought class action and chose to pursue his claims individually, but his complaint was filed more than three years after the allegedly wrongful conduct. The plaintiff argued that his action was timely because, among other things, the class-action complaint, itself, had been timely filed. The United States Supreme Court disagreed holding that the three-year time bar in Section 13 is a statute of repose, not a statute of limitations, and explained that, whereas statutes of limitations are designed to encourage plaintiffs to timely pursue known claims, statutes of repose are enacted to give more explicit and certain protection to defendants, and effect a legislative judgment that a defendant should be free from liability after the legislatively determined period of time. Accordingly, statutes of repose begin to run on the last culpable act or omission of a defendant and are not subject to equitable tolling. Put another way, the three-year time bar in Section 13 is a complete defense to any suit after a certain period.

With respect to their second argument, i.e., that the securities claims are timely because they relate back to the original complaint, the relation back doctrine does not apply to statutes of repose.

CPLR 203(f), which is titled "Method of Computing Periods of Limitation Generally," provides:

Claim in amended pleading. A claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.

By its terms CPLR 203 applies only to "Periods of Limitation." The three-year period specified in Section 13, however, is a statute of repose, which envelops both the right and the remedy. The repose period is, thus, an absolute barrier and prevents any further right of action after the period has run. CPLR 203(f), therefore, is entirely inapplicable and cannot serve to extend the time in which the plaintiffs' securities claims must be brought. Accordingly, the Plaintiffs' Section 11 and 12 claims with respect to Section E are dismissed.

(Internal quotations and citations omitted) (emphasis added).

It is not unusual for the statute of limitations (or like here, a statute of repose) to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding whether claims are barred by the statute of limitations or repose.